Ireland's CRH to buy Lafarge, Holcim assets for $7.4 billion

Lafarge CEO Bruno Lafont, who will become CEO of LafargeHolcim, attends a news conference in Paris, April 7, 2014.Christian Hartmann

DUBLIN (Reuters) - CRH has agreed to pay 6.5 billion euros ($7.4 billion) for assets from rivals Lafarge and Holcim, in a deal that will transform the Irish company into the world's third-biggest building materials supplier.

Shares in CRH rose as much as 7 percent on Monday as investors welcomed a move that will expand the company's global reach, making it the largest building supplier in central and eastern Europe and doubling its presence in emerging markets.

However, some analysts said it was paying a high price for assets Lafarge and Holcim have to sell to win regulatory approval for their planned merger, and that the deal was a big bet on construction markets in a faltering global economy.

"We think they've overpaid," said Merrion Stockbrokers' David Holohan, pointing to press reports the price for the assets rose 500 million euros in the last week of the auction.

"With two-thirds of the assets in Europe, the deal is going to be dependent on benefiting from any increase in construction activity in Europe," he added, cutting his recommendation on CRH shares to "sell" from "hold".

Data last week showed confidence in the euro zone's construction sector declined in January amid fears of deflation and stagnating economies.

Lafarge and Holcim announced merger plans last year, hoping to cut costs, tackle overcapacity and weak demand by creating the world's biggest cement maker. The firms said the sale to CRH put their tie-up on track to complete in the first half of 2015.

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For CRH, the deal follows a breakneck expansion in the years before the financial crisis that CEO Albert Manifold brought to a halt just over a year ago by putting 2 billion euros -- or 20 percent of net assets -- up for sale.

Manifold said CRH had made some bad deals in the past by buying into market trends, but this time was different because the assets fitted well with CRH's existing operations.

"This is just one that's too good to turn down," he told journalists, arguing the U.S. economy was starting to recover and the worst was behind for Europe.

"What this really does is it creates an opportunity for a whole new wave of acquisitions for the next decade."

VALUATION

CRH beat a consortium led by Blackstone for the assets, according to people familiar with the matter.

Analysts said the deal gave the assets an enterprise value (equity plus debt) of 8.6 times earnings before interest, tax, depreciation and amortization (EBITDA), or 7.7 times when adjusted for the savings CRH expects to achieve.

That compares with multiples of more than 10 times paid by Heidelberg in its $16 billion takeover of Hanson and in Cemex's deal with Rinker, both around the height of the boom.

CRH said the assets, which will add 15,000 employees across 11 countries to its current workforce of 76,000, would boost underlying earnings by about 25 percent in the first full year of ownership if the deal completes by mid-2015.

Around 90 million euros of synergies -- net of implementation costs -- would also be achieved in the first three years post-acquisition, it added.

The company, which had a net debt of around 2.5 billion euros or 1.5 times earnings at the end of 2014, expects this to rise to 3.2 times earning on the back of the deal, before falling again thanks to its own disposal plan.

($1 = 0.8843 euros)

Additional reporting by Andrew Callus in Paris, Maria Sheahan in Zurich and Freya Berry in London; Editing by Sandra Maler and Mark Potter